nep-tra New Economics Papers
on Transition Economics
Issue of 2009‒08‒08
fifteen papers chosen by
J. David Brown
Heriot-Watt University

  1. Who Earns Their Keep? An Estimation of the Productivity-Wage Gap in Hungary 1986-2005 By Anna Lov sz; Mariann Rig¢
  2. Monetary Transmission in Three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions By Zsolt Darvas
  3. Levels of recent union formation: six European countries compared By Jan M. Hoem; Giuseppe Gabrielli; Aiva Jasilioniene; Dora Kostova; Anna Matysiak
  4. Fiscal policy in Central and Eastern Europe with real time data: Cyclicality, inertia and the role of EU accession By John Lewis
  5. Vulnerabilities in Central and Eastern European countries : Dynamics of asymmetric shocks By Aleksandra Zdzienicka
  6. The external and domestic side of macroeconomic adjustment in China. By Roland Straub; Christian Thimann
  7. Optimum Currency Areas Structural Changes and the Endogeneity of the OCA Criteria: Evidence from Six New EU Member States By Dimitrios Sideris
  8. Oil Price Shock and Structural Changes in CMEA Trade By Beckmann, Elisabeth; Fidrmuc, Jarko
  9. The Feasibility of Cuban Market Economy: A Comparison with Vietnam By Yamaoka, Kanako
  10. Incentive Effects of Fiscal Equalization : Has Russian Style Improved? By Lev Freinkman; Konstantin A. Kholodilin; Ulrich Thießen
  11. The Effect of Inflation on Growth - Evidence from a Panel of Transition Countries By Max Gillman; Mark N. Harris
  12. Count Your Hours: Returns to Education in Poland By Myck, Michal; Nicinska, Anna; Morawski, Leszek
  13. Financial Policies and Dynamic Game Simulation in Poland and Hungary By Yoshino, Hisao
  14. Does labour mobility reduce disparities between regional labour markets in Germany? By Niebuhr, Annekatrin; Granato, Nadia; Haas, Anette; Hamann, Silke
  15. Impacts of Import Liberalization Policy on Economic Growth in Vietnam: A Channel Analysis By DINH Thi Hoang Yen

  1. By: Anna Lov sz (Institute of Economics Hungarian Academy of Sciences); Mariann Rig¢ (Central European University)
    Abstract: In this paper we seek to provide new empirical evidence on the relative productivities and wages of various worker groups (by gender, age, and education), based on longitudinal matched employer-employee data from Hungary covering 1986-2005. We estimate the productivity and wage gaps from firm-level production functions and wage equations, using firm-level data on productive inputs and output, wage costs, and the demographic composition of the work force obtained from the linked worker data. This methodology allows us to assess whether productive differences can account for the wage gaps between worker groups, as well as the evolution of these gaps following the transition to a free market. We take firm fixed effects into account to assess the role of selection at the firm level, and estimate the production function via the method of Levinson and Petrin to account for endogeneity of input choice. The results show that while there may be significant differences in productivities and wages between groups in the OLS specification, these mostly become insignificant within firms. We find that much of the fall in the value of skills obtained prior to the transition is due to selection of workers at the firm level.
    Keywords: relative wage, relative productivity, quality of labor, production function, earnings equation
    JEL: J24 J31 J71
    Date: 2009–07
  2. By: Zsolt Darvas (Institute of Economics - Hungarian Academy of Sciences, Bruegel-Brussels, Corvinus University of Budapest)
    Abstract: This paper studies the transmission of monetary policy to macroeconomic variables in three new EU Member States in comparison with that in the euro area with structural time-varying coefficient vector autoregressions. In line with the Lucas Critique reduced-form models like standard VARs are not invariant to changes in policy regimes. The countries we study have experienced changes in monetary policy regimes and went through substantial structural changes, which call for the use of a time-varying parameter analysis. Our results indicate that in the euro area the impact on output of a monetary shock have decreased in time while in the new member states of the EU both decreases and increases can be observed. At the last observation of our sample, the second quarter of 2008, monetary policy was the most powerful in Poland and comparable in strength to that in the euro area, the least powerful responses were observed in Hungary while the Czech Republic lied in between. We explain these results by the credibility of monetary policy, openness and the share of foreign currency loans.
    Keywords: monetary transmission, time-varying coefficient vector autoregressions, Kalman-filter
    JEL: C32 E50
    Date: 2009–07
  3. By: Jan M. Hoem (Max Planck Institute for Demographic Research, Rostock, Germany); Giuseppe Gabrielli (Max Planck Institute for Demographic Research, Rostock, Germany); Aiva Jasilioniene (Max Planck Institute for Demographic Research, Rostock, Germany); Dora Kostova (Max Planck Institute for Demographic Research, Rostock, Germany); Anna Matysiak (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: We offer a comparison between the age profiles of risks of formation of marital and non-marital unions in Russia, Romania, Poland, Hungary, Bulgaria, and Italy. We show that there is considerable variability across these populations in the level and age pattern of union-entry risks, ranging (i) from the high and early risks in Russia to the slow and late entries in Italy, and (ii) from an emphasis on marriage in Russia, Poland, Italy, and particularly Romania, to the dominant role of cohabitation reported for Bulgaria. Some of this mostly re-iterates known features (like the patterns for Italy), but they are displayed with unusual clarity in the comparative framework, which also highlights unusual patterns like those for Bulgaria. We cannot see much commonality in union-entry risks among ex-communist countries.
    Keywords: Bulgaria, Hungary, Italy, Poland, Romania, Russia
    JEL: J1 Z0
    Date: 2009–07
  4. By: John Lewis
    Abstract: This paper evaluates the cyclicality, inertia and effect of EU accession on fiscal policy in Central and Eastern Europe using a real time dataset. Budget balances are found to react in a stabilising way to economic activity, and they are less inert than is typically found in Western Europe. There is clear evidence of a fiscal loosening in the run-up to EU accession. This began in 1999 in larger central European countries, often identified as “front-runners”. The other seven began loosening in 2001, after the Nice Treaty had been agreed and their EU entry confirmed. For both sets of countries, this loosening cumulatively amounts to some 3% of GDP.
    Keywords: Central and Eastern Europe; Fiscal Policy; Real Time Data; EU Accession.
    JEL: E62 H6 E61
    Date: 2009–07
  5. By: Aleksandra Zdzienicka (GATE-CNRS/ENS LSH, University of Lyon, France; PSE, Université de Paris 1 Panthéon-Sorbonne, and EPEE, Université d'Evry Val d'Essonne, France)
    Abstract: In this work, we use the VAR and space-state methodology to analyze how the recent developments in 20 European countries have modified the dynamics of structural shocks. Our results confirm a visible progress in (predominated output fluctuations) supply shocks convergence between the CEECs and the euro zone, but also corroborate a positive initial impact of EMU creation and EU enlargement supply shocks correlation. In particular, we find that Croatia, Poland, Slovakia and Slovenia are good candidates to the euro adoption under condition of greater fiscal policy alignment.
    Keywords: segregation, Schelling, potential function, coordination, tax, vote
    JEL: C63 C72 C73 D62 J15
    Date: 2009
  6. By: Roland Straub (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Christian Thimann (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper sheds new light on the external and domestic dimension of China’s exchange rate policy. It presents an open economy model to analyse both dimensions of macroeconomic adjustment in China under both flexible and fixed exchange rate regimes. The model-based results indicate that persistent current account surpluses in China cannot be rationalized, under general circumstances, by the occurrence of permanent technology or labour supply shocks. As a result, the understanding of the macroeconomic adjustment process in China requires to mimic the effects of potential inefficiencies, which induce the subdued response of domestic absorption to permanent income shocks causing thereby the observed positive unconditional correlation of trade balance and output. The paper argues that these inefficiencies can be potentially seen as a by-product of the fixed exchange rate regime, and can be approximated by a stochastic tax on domestic consumption or time varying transaction cost technology related to money holdings. Our results indicate that a fixed exchange regime with financial market distortions, as defined above, might induce negative effects on GDP growth in the medium-term compared to a more flexible exchange rate regime. JEL Classification: E32, E62.
    Keywords: DSGE modelling, China, current account.
    Date: 2009–03
  7. By: Dimitrios Sideris (Bank of Greece and Panteion University)
    Abstract: The present paper has two aims. The first aim is to test whether six new member states of the European Union (the six Central and Eastern European Countries) form an optimum currency area (OCA) with the eurozone, in an attempt to assess their readiness for euro adoption. The second aim is to examine whether the introduction of the euro in 1999 and the decision of the countries to seek to join the euro area created any forces fostering their convergence, evidence which would be in line with the theory on the endogeneity of the OCA criteria. Our findings indicate that the introduction of the euro did promote integration of the six new member states and that, at present, they are quite well aligned with the eurozone.
    Keywords: EU enlargement; OCA; real exchange rates; cointegration; GPPP.
    JEL: C32 F33 F36 F42
    Date: 2009–07
  8. By: Beckmann, Elisabeth; Fidrmuc, Jarko
    Abstract: We analyse trade between countries of the Council of Mutual Economic Assistance in Eastern Europe between 1950 and 1990. Despite central planning and political motivation of the CMEA, we show that trade could be explained by standard demand factors surprisingly well. Moreover, we document that the oil price crisis had several repercussions on Eastern Europe. The Soviet Union as a supplier of crude oil benefited from the energy crisis in the 1970s. In particular, it used energy exports as an instrument of foreign policy. In turn, the responses of the individual CMEA countries in Central Europe were largely different.
    Keywords: economic history; free trade areas; political economy; structural break; gravity model; oil price; CMEA trade
    JEL: F14 C22 N74
    Date: 2009–08–01
  9. By: Yamaoka, Kanako
    Abstract: In spite of the difficulties incurred by its people, Cuba has maintained a centrally planned economy with single party system. On the contrary, Vietnam has introduced a market economy under communist rule, and succeeded in generally improving living standards. The factors that contributed to the introduction of Vietnamese-style reforms are (1) severe economic crisis, (2) demonstration effects from neighboring countries, (3) poor social policy, (4) initiatives by ex-conservative leader/s, and (5) weak state capacity. The conditions to sustain high economic growth are (1) social sectors familiar with capitalist economics, (2) abundant labor forces with relatively low labor cost, and (3) investment by exiles. This paper analyzes to what extent Cuba meets these conditions.
    Keywords: Cuba, Vietnam, Transition to market economy, Economic policy, Socialism, Economic crisis, Social policy, Economic reform, State capacity, governance, development strategy
    JEL: P21 P30
    Date: 2009
  10. By: Lev Freinkman; Konstantin A. Kholodilin; Ulrich Thießen
    Abstract: The effects of inter-government fiscal arrangements on variation in regional economic growth are analyzed for Russia, a country with large cross-regional differences and considerable fiscal redistribution. Moreover, fiscal reforms implemented in the first half of 2000s, which followed to some extent scientific advice, make analysis of this case particularly interesting. We observe that post-reform fiscal redistribution became more rational and this resulted in fewer incentive distortions. We found no negative association between federal transfers and regional growth. Furthermore, there are no major differences between donor and recipient regions in the way how inter-governmental fiscal arrangements influence regional growth. Overall, fiscal policy variables have become less important growth determinants than it was the case in the 1990s. Still further reforms in federalism arrangements would be desirable.
    Keywords: Fiscal equalization, inter-governmental finance reform, Russian regions, extreme bounds analysis
    JEL: C21 E62 H77 R11
    Date: 2009
  11. By: Max Gillman (Cardiff Business School Cardiff University, Research Associate, Institute of Economics Hungarian Academy of Sciences); Mark N. Harris (Monash University Australia)
    Abstract: The paper examines the effect of inflation on growth in transition countries. It presents panel data evidence for 13 transition countries over the 1990-2003 period; it uses a fixed effects panel approach to account for possible bias from correlations among the unobserved effects and the observed country heterogeniety. The results find a strong, robust, negative effect on growth of inflation or its standard deviation, and one that appears to decline in magnitude as the inflation rate increases, as seen for OECD countries. And the results include a role for a normalized money demand in affecting growth, as well as for a convergence variable, a trade variable and a government share variable. And robustness of the baseline single equation model is examined by expanding this into a three equation simultaneous system of output growth, inflation and money demand that allows for possible simultaneity bias in the baseline model.
    Keywords: growth, transition, panel data, inflation, money demand, endogeneity
    JEL: C23 E44 O16 O42
    Date: 2009–06
  12. By: Myck, Michal (DIW Berlin); Nicinska, Anna (Warsaw University); Morawski, Leszek (Warsaw University)
    Abstract: We show how significant may be the difference in the estimated returns to education in Poland conditional on the measure of wages used and the estimation approach applied. Combining information from two different Polish surveys from 2005 and taking advantage of the Polish microsimulation model (SIMPL) we demonstrate how different the results can be depending on whether we use net or gross, and monthly or hourly wages, and show how important selection correction is for the conclusion. While there are several papers examining the wage equation in Poland, so far none of them has provided a comprehensive analysis of the effects of using different methods and the issue of selection-correction in the estimation of the wage equation in Poland has not been examined in detail. Annual rates of return to university education for men vary from 6.7% to 9.7% and for women from 8.0% to 13.4% when we compare results using net monthly wages without correcting for labor market selection to those from a selection corrected specification using gross hourly wages. We also demonstrate that simple linear estimation performs relatively well for men in comparison to our preferred selection corrected estimation, while using family demographics as exclusion restrictions seems to be the "second best" in the case of the wage equation estimation for women.
    Keywords: returns to education, wage equation, selection models, instrumental variables
    JEL: J31 J21
    Date: 2009–07
  13. By: Yoshino, Hisao
    Abstract: Recently, steady economic growth rates have been kept in Poland and Hungary. Money supplies are growing rather rapidly in these economies. In large, exchange rates have trends of depreciation. Then, exports and prices show the steady growth rates. It can be thought that per capita GDPs are in the same level and development stages are similar in these two countries. It is assumed that these two economies have the same export market and export goods are competing in it. If one country has an expansion of monetary policy, price increase and interest rate decrease. Then, exchange rate decrease. Exports and GDP will increase through this phenomenon. At the same time, this expanded monetary policy affects another country through the trade. This mutual relationship between two countries can be expressed by the Nash-equilibrium in the Game theory. In this paper, macro-econometric models of Polish and Hungarian economies are built and the Nash- equilibrium is introduced into them.
    Keywords: East Europe, Poland, Hungary, Monetary policy, Nash-equilibrium, Game theory, Macro-econometric model, Trade, Simulation, Reaction function, Money supply, Central bank
    JEL: C73 E17 E52 F42
    Date: 2009–03
  14. By: Niebuhr, Annekatrin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Granato, Nadia (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Haas, Anette (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Hamann, Silke (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Differences in regional labour market conditions are still pronounced in Germany, especially between the Eastern and the Western part. Traditional neoclassical models imply that labour mobility should reduce disparities. In contrast, models that include externalities or selective migration suggest that regional differences might well increase due to interregional migration of workers. We investigate the impact of labour mobility on regional disparities in Germany between 1995 and 2005. Considering the impact of migration as well as commuting, effects on regional wages and unemployment are estimated. Our results suggest that labour mobility tends to reduce disparities; however, we find significant effects only on unemployment dispari-ties." (Autorenreferat, IAB-Doku)
    JEL: C23 J61 R23
    Date: 2009–07–30
  15. By: DINH Thi Hoang Yen (Ph.D. Student of Department of International Development, GSID, Nagoya University)
    Abstract: Vietnam, a transitional economy that started its historic economic reform in 1986, has been pursuing both the market-oriented and state-controlled developments for more than twenty years. This study focuses on the country's liberalization on internal and international trade polices, an important path of economic reform, by measuring an index for import liberalization policy and then employing "channel analysis" to quantify impacts of import liberalization on the country's economic growth. The study applies the method proposed by Wacziarg (2001) to Vietnamese data for the period 1986-2006 with necessary revisions to accommodate features of the Vietnamese economy. The estimated results by 3SLS regression indicate positive impact of import liberalization on economic growth once the full information of linking channels (government expenditure, macroeconomic quality, black market premium, domestic trade, FDI and exports) have been accounted for. The study concludes that one unit increase of import liberalization index improves economic growth rate by 0.304 percentage point. Of this, increase in technological capability of exports, macroeconomic stabilization, and the efficiency domestic trade is the prominent factors, each occupies roughly 25-30% of the overall channels' impact.
    Date: 2009

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